How to start trading with Forex for beginners.
Before you even think about spending money in this risky business, step back a bit and study what it actually involves and how much can you afford to loss. The latter is the most important aspect you must take into account before deciding if it’s the right place for you.
The best advice for a beginner is deposit as little money as
possible with your broker, and withdraw your profits in small amounts as and
when this becomes possible.
You can open an account to trade with as little as $1 with some brokerage firms, some even offer a start-up bonus to join, but before you take up any offer to join a broker that’s something’s you need to understand.
(Some might will find this next part
a bit boring but it might help others understand more about what they are
getting into)
Forex is an unregulated market that is not traded on an exchange, which means that prices you see and get from one broker could vary from those of another broker.
Look around for one that offers low spreads combined with high leverage (200:1 means your broker would lend you $200 for every $1 of actual capital.)
There are two types of Forex brokers: Electronic Communication Network or ECN for short the other Market-Maker.
The first (ECN) earns money by charging you a commission for all of your trades placed through them. They pass on prices from several banks and market-makers, as well as from the other traders in the ECN, and display the best bid/ask prices based on these input. This is why sometimes you can get no spread on ECN’s, especially in very liquid currency pairs. Other benefits if joining a genuine ECN broker who supports Stop-Limit orders, means it can prevent slippage during news by making sure that your order either gets placed at the price you want or not at all, prices may be more volatile which will be better for scalping. (See support forum for more details)
They do have there downsides as well: Many do not offer integrated charting or news, their trading platforms are less user-friendly and because of variable spreads between bid and ask it may be more difficult to calculate stop loss and profit target in pips beforehand.
The second (Market-makers) set the prices on their systems based on what they think is best for themselves as the counter-party. This is because every time you sell, they must buy, and when you buy, they must sell to you. This is why they can give you a fixed spread since they are setting both the bid and the ask price. Many of them will then try to cover your order by passing it on to someone else, some might even decide to hold your order, and trade against you. This can result in a conflict of interest between yourself and the market-maker.
They have their benefits also, their prices can be less volatile than ECN’s prices, and most have free charting software with a more user-friendly platform combined with news feeds.
Their downside is a large amount of slippage during news reports or freezing not allowing you to place orders during high volatility periods, and many will not allow scalping.